Handling Industrial Economic Issues

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Dealing with Budget Deficits: An Overview

The world is still suffering from the disastrous effects of a financial meltdown that began with the sub-prime mortgage of 2007. In the last 4 years however, the irregularities over financial management has surfaced and manifested itself across all industries all over the world. There are many causes proven as well as proposed, among the most agreed upon are the following:

1. Lack of financial oversight over financial institutions, especially ones that are deemed to be 'too big to fail',
2. Lack of fiscal policy in place that can be enforced to counter corporate behavior, taxation and related financial issues,
3. Problematic government spending and fiscal policies that lead to questionable bail-outs,
4. Problematic government programs that waste national financial resources.

The American Picture

What we see above are generalizations, of course but they all apply in the case of the US, the UK and Japan, among the world's biggest economies and like most countries currently suffering the adverse effects of the meltdown. In the US, many see politics as the problem. The great political divide and partisanship between the democrats and the Republicans had caused a deadlock in Congress as to ways of minimizing or cutting the budget. Pundits observed that the cut proposed was small and shouldn't have been difficult. But politics collared opinion and the deadlock has resulted to the US receiving a minus rating from Standard and Poor's. The US as an economy always held the AAA grade which meant that investors and capitalists should feel confident in doing business within the American market. The degrading signified losing confidence and it sent a signal to investors that the White House parried against. After much lobbying, US status was reinstituted to AAA but the damage had been done. It seemed that US politics is doing much damage to the economy when in fact political leaders should set aside partisanship for the purpose of fixing the economy. The biggest issue in the US is job creation. Current US President Barrack Obama rode to power over a promise of change. He proposed jobs; he promised his electorate that he will set aside politics to fix what ails American society. Several years into his presidency however jobs are still scarce and capital flow to energize the market is not yet in place. He found that he cannot just withdraw from Iraq and Afghanistan and US cash flow is becoming a problem. All this converged to lead to the latest situation in the US, a phenomenon called the 'Occupy Protests'. While disorganized, groups of disenchanted come together to occupy key financial centers and stage protests for the purpose of social and financial reforms. Among the biggest demands is a reform of the US fiscal policies, job creation as well as corporate oversight.

Britain and the European Union

Elsewhere in the UK and Japan, the same protests have cropped up. In St. Paul's square next to Westminster Abbey, British MP's are everyday reminded about discontent due to the tents that have sprouted up. For weeks now the 'occupy' protesters have been there pushing for financial and fiscal reform. UK growth has been impended by what is happening in the European Union. While the UK does not share the common currency - the troubled euro - they are still part of the union and their trade with the rest of the Eurozone is a standard facet of the British economy. The collapse of key European banks and the threatening bankruptcy of the PIIGS (Portugal, Ireland, Italy, Greece, Spain) economies have slowed down growth. Of all the PIIGS economies Greece has tapped out and without the help of France and Germany, the Eurozone's most stable economy, Greece's lifeline couldn't be held. While Germany is pushing for fiscal reforms across the Eurozone, it cannot allow the collapse of Greece as its collapse will also affect Germany being a trade partner. Germany grows with modest growth figures, a feat considering the current economic state. France itself is experiencing deficit issues but its strong industrial backbone is allowing it to plod through. This is similar to the UK.

Britain is a strong industrial and market economy. Its biggest problem however is the fact that it has become a welfare society. Pundits believe that government handouts has led to the younger generation of being too economically and financially reliant that many do not understand the importance of making and keeping wealth. A material society, the economy keeps at a balance as the British demand for goods and services continue. But the divide between those who have jobs supporting their needs and those who rely on government handouts is wide that it has created a form of segregation. Government handouts are among the highest in the world and those who can opt out to be dependent on the system. The divide was much observed in the recent riots in England when kids took advantage of an alleged police injustice in Hackney and took to the streets, looting shops, burning them down, robbing strangers and generally running rampant for the purpose of gaining access to computers, phones, clothes and other material goods in demand. The riots spread across England firmly in key economic centers that the government spoke out against moral decay and recognized the typology of perpetrators as well as the system that shaped them. The riots caused not only great anger but also cost the country heavily affecting the already struggling British economy. The acknowledgement of problematic government spending however brought to the core the need for fiscal reform and a rethinking of how best and where to spend the government budget. Across the board cuts were instituted and even MP's were not spared. Their staff spending where exposed and many admitted to blowing up staff budget for their own personal use. Military presence in Afghanistan and Iraq was also questioned.

Japan's Situation

As for Japan, the problem is manifold. Primarily industrial, the world's biggest supplier of motor vehicles at one point, Japan, an archipelago, is dependent on import of raw materials. For growth, Japan also relied heavily in investing abroad. But with such gloomy situations in the West and in newly industrialized countries where Japanese presence is active, the effect is an unexpected drop of 31.5% in 2009 (Forbes, 2009) of income surplus. All this converged to shrinking exports and tanking investments leading to fiscal deficits. Key Japanese giants like Toyota Motors, Nissan Motors, Mitsubishi Motors, Honda Motors, Mazda Motors, Canon, Nikon, Sony, & Toshiba for example have been hit hard and their shares in the NIKKEI and the NYSE have dropped in 2009 gaining only moderate growth in the last 4 years. This problem has seeped into politics as jobs become scarce and incomes become smaller. In the last 5 years Japan went through a succession of Prime Ministers, many unable to hold onto the top political spot for more than 6 months. Culturally, the Japanese are not spenders - they tend to save and are not dependent on credit. Their financial spending is very similar to the Germans but unlike the Germans, they are heavily dependent on imports, even for the most basic items in their cupboards. As such, domestic demand, unlike the UK or the US cannot pick up the slack for growth. Afraid of spending, the Japanese look to growth in foreign markets where they have invested. This is the fiscal issue that must be mended by the government and the Japanese society, the issue how to become a self-dependent economy even when growth areas outside of the country are embroiled still in the global recession. Many see that while the Fukushima disaster was tragic, the rebuilding can spur the Japanese economy and inject much needed capital ...